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Every year thousands of new companies are incorporated in
California. As the nation’s most populous state at 38 million people,
California is home to such companies as Walt Disney and
Adobe. Despite California’s appeal and allure, forming a
company in the Golden State comes with some
disadvantages.

Those thinking of forming a limited liability corporation in
California should note that the California Franchise Tax Board
imposes a minimum franchise tax of $800 on every company that's
incorporated in the state.

While a handful of other states such as Arkansas require
companies to pay an annual franchise tax, California’s minimum
$800 franchise tax fee is the
nation's highest. A California company must pay this tax
whether it's active, inactive or operates at a loss. Companies
are required to remit payment within the first four months of
formation and every year after. Failure to pay the $800
franchise tax each year can result in a company's
suspension as well as hefty penalties.

While other states impose franchise taxes, California is the only
state to impose a minimum franchise-tax flat fee. Also, while
other states' franchise taxes are contingent on such factors as
gross profits and revenue, California doesn't allow for any
exceptions or contingencies concerning the imposition of a
franchise tax.

Gone are the days of standard limited liability companies. Some
states are setting up statutes that allow for a range of
limited liability companies. One type of limited liability
company that's popular is the series LLC: This setup arises
when a master limited liability company's organizing
documents allow for separate subunits (or a series) that operate
as independent LLCs. Although several states such
as Texas and Illinois allow for series LLCs,
California does not.

Each series within a LLC might have a separate business
purpose and distinct rights, powers, duties and allocations of
profits and losses. A series LLC has a flexible
structure and reduced administrative costs. This business
structure lets entrepreneurs run several different
operations under the framework of one LLC after filing only
a single articles of organization (as opposed to several).

Series LLCs are popular among entertainment and tech
firms, two types of companies critical to California’s
economy. While other states have begun to broaden their
LLC offerings, California still lags behind.

Unless expressly stated otherwise in an LLC’s operating
agreement, the law requires members' unanimous consent for
carrying out the following activities: selling, leasing,
exchanging or disposing of all or mostly all the LLC’s property
outside the ordinary course of business.

The new law requires LLC managers and members to be a lot
more meticulous in drafting their operating agreements.
Otherwise, LLCs will be subject to many more requirements.

Before the passage of the new act, unanimous member approval was
required only for amendments to the articles of organization and
the operating agreement.

While an operating agreement can override these rules, members
and managers must be careful to ensure it does.Otherwise,
they run the risk of having their company subject to a number of
new regulations. Entrepreneurs thinking of forming an LLC in
California are advised to consult the new law beforehand.